Insurance giant Allianz Global Corporate Solutions (AGCS) has warned asset values should be regularly reviewed as inflation approaches double figures in the West.
In its Global Claims Review 2022 AGCS said asset values would be under the spotlight in 2022 as the risk of assets becoming underinsured increases.
Philipp Cremer, global head of claims performance and liaison at AGCS, said: “In a high inflationary environment, it is important that businesses regularly monitor the value of assets, as well as the implications for the costs of replacement or business interruption.”
Cremer did not directly reference the maritime industry, but his comments could easily be applied to the sector.
Higher commodity prices and shipbuilding material costs — along with booming markets — have pushed up marine asset values.
On average secondhand dry bulk prices have risen 22%, and newbuilding prices by 18% over the past year.
The situation is already causing problems in Ukraine where, in many cases, the insured value of ships trapped in Black Sea ports nearly six months ago is now below their replacement value.
Cremer cited an example of a marine insurance claim he had seen where “the actual vessel value was 50% higher than the declared value”.
The situation has led to a discussion in the insurance market about whether specific clauses should be added to contracts to cover the insurer if asset values are not updated.
“Nobody wants a dispute about underinsurance after the loss. It’s much better for all parties to get the right value and charge the right premium in the first place,” said Cremer.
On the hook
In its claims review, quoting research carried out by Property Claims Services, AGCS said marine insurers could be on the hook for claims valued at up to $5bn for the ongoing conflict in Ukraine.
That would place the marine sector the second hardest hit after aviation which is facing up to $10bn in claims. The aviation claims come mainly from Russian commercial aircraft, financed in the west, that the Russian government has confiscated.
AGCS has identified 100 ships caught up in the conflict that could either be damaged or eventually declared a total loss. There are also likely to be additional cargo claims as well as claims related to port and infrastructure damage.
